Friday, January 31, 2020

Capital Markets: "Stocks Finishing on Poor Note, while the Dollar and Bonds Firm"

From Marc to Market:
Overview: It was as if the World Health Organization's recognition of that the new coronavirus is an international health emergency was the catalyst that the markets needed. US equities recovered smartly and managed to close higher on the session. However, the coattails were short, and follow-through buying of US shares fizzled. In the Asia Pacific, Japan, Taiwan, and Australian equities firmed, while disappointing data weighed on European equities. The Dow Jones Stoxx 600 is off about 2.5% this week, its largest decline in October. The S&P 500 is trading about 0.5% lower. Benchmark 10-year yields are edging lower. The US 10-year is holding below 1.60% for the second consecutive session, and the 30-year is just above 2.0%. The dollar is mostly higher, with sterling resisting the tug as the UK is prepared to leave the EU tonight. Emerging market currencies are also heavy, as risk is mostly shunned. The JP Morgan Emerging Market Currency Index is off 1.25% this week, the most since last August. Gold is firm, and near $1580 is up a little more than 0.5% on the week. Oil is steady to firmer today, but March WTI is down 3.25% this week, its fourth consecutive weekly loss, and is holding just above key support near $52

Asia Pacific
The World Health Organization declared a global health emergency, which is a cue for more national and international action and resources.
At the same time, it opined that restrictions on travel and trade were unnecessary now, though it does not clear than any actual curbs have been rescinded. WHO officials also praised China national leaders for their aggressive response, which included building a new hospital in 10 days. However, it appears local officials may have been slow to respond initially.

China's official PMI did not show the stress of the coronavirus but did indicate the manufacturing sector was vulnerable before the health crisis. The January manufacturing PMI slipped to 50.0 from 50.2. The non-manufacturing sector performed better, rising to 54.1 from 53.5. The composite eased to 53.0 from 53.4. The officially extended Lunar New Year holiday ends February 2, but provinces and cities that account for around 2/3 of the country's GDP will remain shut for about another week.

Japan's retail sales disappointed, but the industrial output jumped 1.3%, its first increase in three months. December retail sales rose by 0.2% compared with expectations for nearer a 1% gain. Recall that retail sales plummeted in October (sales tax increase and typhoon) and surged 4.5% in November. The rise in industrial production featured a strong rise in equipment that produces flat panel displays. Nevertheless, industrial output fell about 4% in Q4 and will drag GDP lower. Japanese unemployment was steady ay 2.2%, a 27-year low. Separately, South Korea also reported better than expected industrial output figures for December. The 3.5% jump was the most in three years. Expectations for less than a 1% increase. The data is consistent with an uptick in the region before the coronavirus struck....